How does this work? Let’s take a look at an example …
Say you had a $20,000 Direct Subsidized Loan and a $20,000 Direct Unsubsidized Loan at a 5% interest rate. You took them both out six months before graduation and signed up for the 10-year Standard Repayment Plan after your six-month grace period was up, giving one year for interest to add up on the Direct Unsubsidized Loan.
Here’s how the two compare:
Direct Subsidized Loan | Direct Unsubsidized Loan | |
---|---|---|
Balance after grace period | $20,000 | $20,999.96 |
Monthly cost | $212.13 | $222.74 |
Total interest cost | $5,455.72 | $6,728.46 |
In this case, you’d pay $10 more per month and nearly $1,300 more in total interest because of interest capitalization.